Disasters sap Munich Re’s profit and demand for coverage weakens
Munich Re, the world’s biggest reinsurer, reported a bigger-than-expected drop in fourthquarter earnings as claims from natural disasters rose while prices continue to fall.
Net income declined to about €500m from about €700m a year earlier, according to a statement on Tuesday. That missed the €630m estimate of nine analysts.
The company proposed a dividend of €8.60 a share for 2016, after paying out €8.25 the year before.
Reinsurers, which help primary insurers shoulder risks, are returning cash to shareholders as years of low claims from natural catastrophes reduce demand for coverage. Renewed premium volume declined 4.9% and prices fell about 0.5% in January, when Munich Re renews about half of its nonlife reinsurance business.
That was even after Hurricane Matthew, which battered the US East Coast in October after devastating parts of the Caribbean, pushed up claims during the fourth quarter.
“Market conditions for the renewals were once again challenging, even though the trend towards price reductions continued to slow,” said property and casualty reinsurance unit head Torsten Jeworrek.
“We withdrew from business that no longer met profit expectations — for instance, in China — and built up or expanded profitable business, either through acquisitions or by strengthening existing client relationships.”
Munich Re paid €232m for Hurricane Matthew and €251m for an earthquake in New Zealand in the fourth quarter. As a result, the combined ratio at the property and casualty reinsurance unit, its most important in terms of earnings, worsened to 101.9% in the quarter from 78.6% a year ago. The ratio measures premium income against claims and costs.
Net income at the reinsurance unit decreased to about €400m in the fourth quarter from €1.4bn a year earlier.
Munich Re shares had fallen 2.2% by 9.41am in Frankfurt trading, bringing losses in 2017 to 4.3%. Hannover Re, the thirdbiggest reinsurer, rose 0.7% after reporting higher full-year profit.
Hannover Re’s full-year net income rose to €1.17bn from €1.15bn in 2015, helped by “a further improvement in the underwriting result in property and casualty reinsurance”, the German-based company said on Tuesday. It did not give fourth-quarter earnings.
Munich Re’s full-year profit declined about 16% to €2.6bn, missing the €2.7bn estimate of 20 analysts.
Munich Re said in November that full-year 2016 earnings might “substantially” exceed a reduced target of €2.3bn.
The company, which plans to report more detailed results on March 15, said in June that fullyear earnings would include a €1bn restructuring plan for its Ergo primary insurance unit. As part of the plan, the business would cut about 13% of its workforce and modernise its computer systems.
Ergo reported a full-year loss of about €40m after a shortfall of €200m a year earlier. The unit, led by management board member Markus Riess, “is making good progress” on its restructuring and staff reductions, the company said.
“From now on I’m confident that we will see positive figures,” Munich Re chief financial officer Joerg Schneider told Bloomberg TV, adding that the company paid about €250m for the unit’s revamp in 2016.
Munich Re CEO Nikolaus von Bomhard will hand over the CEO post to management board member Joachim Wenning in April.